What to expect from the 2015 budget
Wednesday’s budget will be a crucial event in the General Election campaign. Presented by this most political of Chancellors; it will project the Tory vision of the future – “the long-term economic plan”. George Osborne will talk proudly of his record as a guide to the future.
So it only fair that we look at his first Budget speech and the measures of success set by the new Chancellor in 2010. His two crucial measures were to reduce public sector net borrowing and the public sector net debt. The public were to judge the performance of the government on these two key measures.
Before the 2008 crash, in 2007/08, borrowing had stood at £40.3bn, 2.7% of GDP. Peaking at £153bn, fiscal stimulation policies had reduced it to £134bn, or 8.5% of GDP for 2010/11. Osborne said in his 2010 Budget statement that because of his massive fiscal austerity programme, “By 2014-15 borrowing reaches £37 billion, exactly half the amount forecast in the March [Labour] Budget.” So how did he do? His austerity caused pain and suffering but it also miserably failed – because it screwed growth, wages and revenues. So by 2014/15 borrowing will be £91bn, or 5% of GDP. Higher than Labour’s plans with far fewer cuts anticipated, and two and half times bigger than he forecast, and over double the pre-recession level. Indeed, Tory policies have resulted in the slowest recovery “since the South Sea Bubble 300 years ago” as Prof David Blanchflower put it.
On debt, Osborne attacked Labour plans which would have seen it increase every year between 2010 and 2015, promising instead to reduce debt to 67% of GDP in 2015/16, and cut interest payments on debt by £3bn. His austerity failure instead meant that debt has increased for every year of this parliament and will be at 81% of GDP in 2015/16 not 67%. Interest payment, far from decreasing by £3bn will have increased by £3.3bn.
On growth, GDP per head (a much better guide to average prosperity than GDP itself) grew at an average rate of less than 1% in the four years from 2010 to 2014. In the previous 13 years (1997 to 2010), growth averaged over 1.5%. So growth in GDP per head was more than 50% higher under Labour than under the Conservatives, even though the biggest recession since the 1930s is included in the Labour period. The 2010 move to austerity cost a cumulated loss of 5% of GDP or £1500 for each adult and child in the country – and this is reflected in the real squeeze in living standards – which is felt in spite of Tory politician spinning.
In spite of this disastrous history of the failure of austerity, the Chancellor will outline his further policies for the extension of austerity, and cuts described by the Institute of Fiscal studies as “colossal” over the next Parliament with similar predictions about deficit and debt reduction. Osborne was wrong in 2010, but the evidence has grown – there is now an overwhelming consensus, including such august and right-wing institutions as the IMF, that austerity and cuts are the wrong approach. This lays bare the ideological nature of the Tory cuts programme – designed to produce a very much smaller state, and a poisonous and divided unequal society, turbo-charged neo-liberalism. The tea- party small state “logic” that public spending “crowds out” private investment is completely flawed. All the evidence instead points to the essential role of the state in infrastructure investment, innovation, research and education, and the green transformation of the economy. Indeed one of the results of the Tory recovery has been declining business investment – even in the last two quarters when the recovery has been underway The Tory economy and society of 2020 will not only be divided and bitter, but will be failing and declining without hope for the future.
Tax cuts will be announced – crude election sweeteners, bringing forward aspects of the Tory manifesto. But even these will be deeply unfair. The distribution of gains across households under Conservative manifesto proposals to raise the personal allowance to £12,500 higher rate threshold to £50,000 by 2020-21, shows that the poorest 10% gain £17 per year while the richest 10% gain £649 per year. What claims to be helping the poor actually helps the rich much more.
But in addition Osborne says he will have a neutral budget – any tax cuts will be balanced by spending cuts which will hurt the poorest even more. And already in the words of Paul Johnson, Director of the Institute of Fiscal studies assessing Tory plans, “it’s not very difficult to come to a world in which you are looking at £50-60-70bn of spending cuts.”
Expect some figure fiddling – claiming revenues have improved, so the economy is doing even better than Osborne thought in the Autumn. If he does this, look for the small print, for example: “Central government receipts were £4.8 billion higher than last January, but £2.1 billion of this reflected transfers from the Bank of England’s Asset Purchase Facility that reduced public corporations,” and indeed the Office of budget Responsibility and the Office of National Statistics will be rejigging definitions this week – all complex adjustments which mean nothing real, but may be seized upon with selective quotations by Osborne to claim he now has more wiggle room.
While Labour promises £50bn more investment and spending than the Tories, and a wages–led recovery, too often it tends to shy away from a full frontal assault on Osborne’s failed austerity. The Tories do indeed have “a long-term economic plan “- the road to ruin. There can be no better time than now to take on austerity.